One thing that is almost universally agreed upon in the energy world is that the future for liquefied natural gas (LNG) is tremendous. LNG is natural gas that has been cooled to a liquid state, at about −260° Fahrenheit, for shipping and storage. The volume of natural gas in its liquid state is about 600 times smaller than its volume in its gaseous state.
LNG is normally warmed to make natural gas to be used in heating and cooking, as well as electricity generation and other industrial uses. LNG also can be kept as a liquid to be used as an alternative transportation fuel. With the incredible world demand, and a burgeoning infrastructure, the growth in the industry is almost unmatched.
A new Stifel report offers a wide-ranging synopsis of the firm’s recent LNG bus tour. The report noted this when discussing the industry outlook and the opportunities for investors the analyst prefers:
New Gulf Coast projects will certainly cross the finish line, but price is unquestionably the most important factor unless you have the balance sheet wear risk. Consequently, we come away believing the support functions such as equipment and pipelines may be the best way to play U.S. LNG growth.
Three major U.S. companies show up as big players in the segment, and while one is more of a major producer, they all make sense for investors looking for exposure. In addition, they all pay outstanding dividends, and their stocks are rated Buy at Stifel.
This top stock is still down a stunning 30% from highs printed in October, and it is a top pick across Wall Street. Anadarko Petroleum Corp. (NYSE: APC) operates through three segments. The Oil and Gas Exploration and Production segment explores for and produces natural gas, oil, condensate and natural gas liquids (NGLs). The other segments are Midstream and Marketing.
Anadarko has the capacity to sustain planned stock buybacks at current levels, providing support to close a value gap that many on Wall Street see at 50%. Strong free cash flow, enabled by advantaged Brent leverage, has competitive free cash compared with traditional large-cap “yield” names, but with competitive growth potential. The company has made a transition toward compelling value with growth and yield.
The Stifel team said this when reviewing the company’s LNG progress on the company’s Mozambique project:
Anadarko already has a fully staffed LNG trading and shipping office in Singapore. With respect to the existing contracts, the majority of the volume is destined for Asia, but specifically India and Japan. Importantly the Japanese have been very hesitant buyer of U.S. LNG recently and appear to prefer Mozambique for their future needs as Japanese buyers a) are less interested in Henry Hub and 2) do not want to risk dealing with a small development company.
Anadarko Petroleum shareholders are paid a 2.69% dividend. The Stifel price target for the shares is $80, which compares with a Wall Street consensus price objective of $68.44. The stock closed trading on Monday at $44.76 a share.